A sales tax is a consumption tax imposed by the government on the sale of goods and services. A business is liable for sales taxes in a given jurisdiction if it has a nexus there, which can be in terms of location, an employee, an affiliate, or some other presence, depending on the laws in that jurisdiction.
·Types of Sales Tax
There are the three general types of sales taxes:
1.*Seller (vendor) privilege taxes*.
These taxes are imposed on retailers for the privilege of making retail sales in the state. Retailers usually have the option of absorbing the tax (that is, paying the tax out of their own pockets) or passing it along to their purchasers, which may increase the prices paid by the customers.
2.*Consumer excise (sales) taxes*.
A consumer sales tax is imposed on the person who makes retail purchases in the state. Because the tax is primarily the purchaser’s responsibility, sellers don’t have the option of absorbing the tax and usually must separately state the tax on the receipts or invoices they provide their purchasers.
3.*Retail transaction taxes*.
These taxes are imposed on the retail sale transaction itself, with the primary liability for paying the tax falling upon both the sellers and the purchasers. Sellers are responsible for collecting and paying the tax, and purchasers are responsible for paying the tax that the sellers must collect and pay. In essence, this type of sales tax is a hybrid of the other two types.
·Different Sale Tax Rates
California has the highest state-level sales tax rate, at 7.25 percent.[2]<taxfoundation.org/2021-sales-taxes/#_ftn2>
Four states tie for the second-highest state-wide rate, at 7 percent:
1.Indiana,
2.Mississippi,
3.Rhode Island, and
4.Tennessee.
The lowest non-zero state-level sales tax is in Colorado, which has a rate of 2.9 percent.
Five states follow with 4 percent rates:
1.Alabama,
2.Georgia,
3.Hawaii,
4.New York, and
5.Wyoming.
·Sales Tax Calculator
If you sell from one location, like a retail storefront, find out your local sales tax rate and might want to charge that rate to all customers.
You can find your sales tax rate with a sales tax calculator or by contacting your state taxing authority. If your local sales tax rate is 8.5%, then you would charge 8.5% sales tax on all transactions. This is as long as the item you’re selling is subject to sales tax.
Sales Tax is an important tax that affects businesses, retailers and customers alike. Hence an understanding of the same is very essential. Our tax experts at National Tax Preparers of America (NTPA) can help you understand and utilise these taxes to accurately help you file your tax returns.
